Natural gas jumps to one-month high on above-average supply drop

Natural gas futures jumped to the highest price in more than a month after a government report showed a bigger-than-forecast U.S. stockpile decline.

Gas rose as much as 2.5%, reversing a 1.6% drop, after the Energy Information Administration said stockpiles fell 148 billion cubic feet last week to 3.168 trillion. Analyst estimates compiled by Bloomberg showed an expected decrease of 139 billion.

“It’s a supportive report,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “The current weather and weather forecasts for key gas-consuming areas for the weeks ahead are supportive of prices.”

Natural gas for February delivery increased 6.9 cents, or 2%, to $3.504 per million British thermal units at 10:43 a.m. on the New York Mercantile Exchange, after rising as to $3.52, the highest intraday price since Dec. 10. Gas was trading at $3.436 before the storage report was released at 10:30 a.m. Trading volume was 79% above the 100-day average. Gas has climbed 41% from a year ago.

A supply surplus to the five-year average increased to 11.1% from 10.7% the previous week. Supplies were 4.4% below year-earlier levels, widening the deficit from 2.6% the previous week.

Colder Weather

Weather models show there will be a “bigger cold outbreak” sweeping across the Northeastern, mid-Atlantic and Midwestern states from Jan. 22 through Jan. 26, according to Commodity Weather Group LLC in Gaithersburg, Maryland.

The low in New York City on Jan. 22 may be 19 degrees Fahrenheit (minus 7 Celsius), 8 below the usual reading, and Chicago will drop to 13 degrees, 5 below normal, according to AccuWeather Inc. in State College, Pennsylvania.

About 50% of U.S. households use gas for heating, EIA data show.

Factoring in weather, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said his models indicate that lower gas prices earlier this month may have spurred coal-to-gas switching among power generators.

Cold weather in the Southwest may also have curtailed production in the San Juan and Permian basins, where producers don’t normally invest in cold weather gear, he said.